Whilst I greatly admire Prof Clay Christensen’s work, and this one in Harvard Business review with colleagues Mark Johnson and Henning Kagermann is good guidance in some cases, it is plain dangerous for most organizations right now.
The basic idea is fine – many innovations like iPod/iTunes will only work if they redefine how money is made, by whom, for what. Large corporations may need to develop new models in order to exploit radical innovations. But that’s not the situation facing most firms, especially right now.
After a few years of chasing intriguing but fanciful new opportunities, many businesses have over-extended themselves, and neglected the core business that makes reliable money. The article reports that 50% of executives believe the hype that they should be seeking ‘business model innovation’ – hardly surprising, since they have been heavily sold this message by HBR and others over several years.
What most actually need to do right now is re-focus on what works and do it effectively. If they spend their time instead looking still more avidly for some fantasy new world, they may find there’s no business left to take there.
I am not saying for a moment that business model innovation is a bad idea – just not relevant for the vast majority of firms. As the article notes, “Fully 11 of the 27 companies born in the last quarter century that grew into the Fortune 500 in the last decade did so through business model innovation.” So … 16 didn’t, and 473 stayed there without doing so – and that’s ignoring the many cases of attempted inovation that failed catastrophically. Anyone still backing eBay using Skype to transform its payment model, or Time-Warner using AOL to transform delivery of media content, or Hyundai to dominate the car industry through eliminating dealers from the business model?
The article is also pretty generous in defining what counts as business model innovation, e.g. Apparently, Tata didn’t launch low-cost cars to low income families in India, it offered a transforming proposition to families travelling on scooters.